Alec Phillips, chief US political economist for Goldman Sachs Research, provides an update on investors’ expectations for the upcoming election on November 3rd.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to exchange the Goldman Sachs Marcus Update for Thursday October 22nd. Each week we checking the leader across the firm to get a quick take on what they're watching in markets. I'm Jake's you would go about of corporate communications at the firm Johnny today we about Philip through our chief, you have political economists- are Goldman Sachs Research I'll go back to the programme. Shoulder within two weeks on election day out and theirs. What's going on on the campaign trail, what we learn from the markets about what investors are expected to happen on November
So I think we ve seen a couple of things. One is if you look at some of the baskets on the equity side that we have that reflects kind of different themes. So, as an example, one would be stocks that benefited from tax reform and twenty seventeen versus those that you know maybe benefit at last. They do seem to be reflecting. You know, an expectation of a change in tax policy, and so that presumably implies that there are also expecting change in control. Now Y see to be the case is there not expecting the for change and tax policies about either reflects an expectation that you know there are still some uncertainty around the election or a reflex the idea that, well maybe a democratic sweep is the more likely I've come, but that things what changes much ass. What former vice President Biden, as laid out in this campaign plants,
say you can see that concerns around hung up. Election results have also subsided some. So we used to see that there was a pretty noticeable kink in the car so a essentially alot of implied volatility right after election day, but that it sort of spreading over a couple of weeks passed election is now looking a little bit more concentrated, pretty cool, so the election which I would say, probably reflects the idea that Biden has a bigger lead and therefore may be a higher probability that you mean election result on election night. And it's not, you know a really close resolve and maybe also just a little bit better understanding of how the mechanics work behind all this so for investors. What's the biggest variable that there still focus on what's up in the air that investors would like certainty around
Well, I mean, I think, probably the most important thing from the sort of policy or political world is religious fiscal stimulus still for two reasons. One obviously did matters a lot to the economy and the new year term. What happens, but also you know, there has been a clear focus on the idea that a democratic sweep this year, we'll be may be different for stocks, then it would be normally. Normally we hear about well taxes, my rise regulatory arrests made increase for certain sectors, etc, etc. Now you know there's still discussion of all that, but there is also discussion of a much larger fiscal stimulus expectation under democratic sweep. Then you would. add under say, like a status quo outcome and so that very noticeable in plying conversations where two months ago it was you know the number one question was well how much
Do you think the corporate tax rate will increase, and now the number one question is how much he'll stimulus? Do you got under democratic sweep versus other elections in areas to? Then some time in the U S, Senate and investors are very focused on the Senate. There there's a range of possible outcome, not a he'd range, but a range of possible outcomes. Today, there are plausible: how do you think about what the Senate look like empty election and what that means for policy, so There are sorties two main questions there. One it is who is the environmental or the marksmen vote on the big bills that they're moving through whether a stimulus or whether its attacks- and you know, healthcare bill or something later in the year ends here. The margin makes a big difference for that, because if it's fifty fifty it's gonna be essentially the most centrist Democrat
people my point to, for instance, Senator Joe Mansion from West Virginia? There are few others that, where, if you just look at sort of uniform rankings and things like that, when pop up, on the other hand, if you get too like safety to fifty three, then the position that person holds? You know my change and so just as one example of this. If we look at fiscal stimulus, which is the best thing that people are focused on first up next year in the scenario of undemocratic sweep, mansion has already said, he doesn't want to vote for something over three trillion. But nobody else is really put a price that now free trade, he's probably well within the range of expectations anyway, but nevertheless, and tells you that there might be a little bit about limiting factor there. Did you get it fifty two or fifty three then you're not going to necessarily have as much of a limit there. And you also, then, on the other side. Probably have you know, maybe a little bit more appetite for a corporate. in Greece and other things like that. Other thing, though, that's you,
about this election. At least that I can remember, is this question of getting rid of the filibuster answer, you know, that's the other bathing that people are starting to focus on if we get a bit fifty resolve most people would say, were unlikely to see the filibuster and certainly not right away anyway, and that largely there's a few senators and said that they don't want to do it on the democratic site. If we get you, no fifty three, fifty four, which is probably the outside range of possibilities there and ass scenario. You know it becomes probably at least turning very possible that they get rid of the filibuster and what does is it opens a whole new set of issues that investors, lap and think about, because instead of is thinking about fiscal policy which Jimmy, we can pass with fifty one votes in the Senate will also have to start thinking about all the different regulatory issues and so on I guess it is from. Like an equity market perspective,
to be sorted out too much of a good thing where I think they are, the market is after fiscal stimulus you're, not necessarily after an additional sort of set of regulatory uncertainties. That would come with fifty three. Fifty four. those in the Senate. So you know Now, if you look at protection markets, the most likely scenario implied in those markets is fifty one. and that seems like my guess, is that of the golden outcome from an equity market perspective or for that matter. Financial market perspective, more generally So anyone who is around to laugh election knows that no one knows anything, and I most the political prognosticate he's got a wrong, not all of them. But what similar to the twenty six. election and what looks different from a market perspective I mean I'll, say one similarity, and this is not necessarily the market, but I mean the polling right. Now is the early similar to what it was in twenty sixteen. So, if you want, Wisconsin this day
and twenty sixteen months in had a seven point, lead Pennsylvania this day and twenty. Sixteen six point laid Florida four point lead those the way, the same margins that we have today and those same states so fairly. There's some similarity there I mean, I think, what stiff, this time is that there is probably more, of a focus on the policy consequences on a specific policy consequences coming out of the election, whereas in twenty sixteen, what we had was a more get that seem to trade up equity seemed to trade up when Clinton looks more likely to win entry, and down when from looked more way to win, and this is one of these things where you can actually show this Vienna quantitatively looking at protection markets versus the Essen peer whatever and then, on election night totally Wendy and wept, so
I think one of the things that people are trying to figure out now is: are we sort of looking at the same thing again where right now it looks like the market? is training more positively when it thinks we're gonna, get more stimulus, and that's it. seems to be equated, were united, democratic sweep couldn't turn out that you don't like in twenty sixteen one the election happens, things go. The other way is maybe the stimulus is like already baked in and people such as more on some of the other factors south in some ways is similar, but I think you know to me. The difference is that, ultimately, what the market is probably going to focus on is the actual all tangible policies right now, the one that seems to be most obvious. It is this question small stimuli, inciting that probably still dominates the other factors, so what he knew
personally watching those policy between now and November there. So I Probably the most important thing from here is just going to be what we see in terms of the earlier vote. It was forests, Lee leading in twenty sixteen unite and a lot of people were looking at the early vote in Florida. Thinking that was pointing to a strong democratic performance which turned out to be the case. I think This year we were seeing right now is again like you know. Democrats seem to be doing pretty well down there in terms of raw numbers, but the difference is that polls are suggesting that they should be doing even better, because so many of them just in responding to polls, are saying that they're going to go to buy nail and yet you're, not quite seeing that in the numbers,
So I think that Europe from here, unless we get some had a big surprise out of the blue, I think it's gonna just be about early voting and how that shapes expectations going into election day. Well, Alec thanks joining us. Why we back after the election to talk about what's next but appreciate you didn't time today, since your things that offer this week's markets up day, not exchange the Goldman Sachs in case you missed it check out or other up. This week with chasing granite, I'm a why bore transition and the impact of having both on Wall Street and mainstream thanks for listening hope Airborne has great weaken this podcast was because
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